Amendment to the Framework Law on Foundations
Legal alert no. 164
On August 25th, 2021, Law No. 67/2021 was published in the Portuguese Official Gazette, which makes the third amendment to the Framework Law on Foundations, approved in annex to Law No. 24/2012, of July 9, amended by Laws No. 150/2015, of September 10th, and 36/2021, of June 14th.
The aforementioned law amends, in particular, articles 4, 6, 7, 9 to 11, 13, 16, 17, 20, 22, , 23, 35, 36, 50 and 54 of the Framework Law on Foundations, which now have a new wording, and adds articles 9.-A, 13-A and 23-A.
Among the amendments made, we highlight the following:
- Public Foundations governed by Private Law: If public legal persons no longer hold dominant influence over a public foundation governed by private law, it may be requalified following a decision to that effect, upon a mandatory and binding opinion by the Advisory Board.
- Doubts or disputes about the Foundation's assets: The existence of doubts or disputes on the assets allocated to the foundation will no longer determine the immediate revocation of the act of recognition but will only constitute grounds for its revocation.
- Legal Certification of Accounts: The submission of financial statements for legal certification of accounts becomes mandatory for all Portuguese or foreign foundations that carry out their activity in national territory, except for foundations that do not meet the criteria referred to in paragraphs 1 and 2 of article 12 of Decree-Law no. 36 -A/2011, of 9 March, i.e., foundations that, not presenting consolidated accounts, exceed the limits referred to in article 262 of the Commercial Companies Code, under the terms provided for therein (i.e., foundations that for two consecutive years exceed two of the three following limits: a) balance sheet total: 1,500,000 euros; b) total net sales and other income: 3,000,000 euros; and c) number of workers employed on average during the year: 50).
It should be recalled that, currently, foundations whose annual income is less than 2,000,000 euros are exempted from the obligation to submit their accounts to an external audit.
- Limits on personnel expenses: The diploma introduces changes to the limits on personnel expenses to be carried out by private foundations with public utility status and public foundations, with the limit being (i) 15% of annual income for foundations whose activity consisting predominantly of granting benefits or financial support to the community and (ii) 75% of annual income for foundations that mostly provide services to the community. Failure to comply with these limits constitutes grounds for revoking the status of public utility and, in certain cases, rejecting the request for its renewal.
In case of persistence of doubts about the framework of the foundation's activity in one of the options above, the qualification resulting from the pronouncement of the Advisory Board prevails.
- Disposal of assets: The Law clarifies, for the purposes of the disposal of assets that are part of the initial assets of private foundations with public utility status and public foundations, what is meant by assets that “have a special meaning for the purposes of foundation". These are: a) assets that are essential for the achievement of the foundation's corporate purpose; b) goods that are classified as such in an express declaration of the founder's will; and c) assets whose value, regardless of their purpose, is greater than 20% of the foundation's assets resulting from the last approved balance sheet.
Regarding this matter, the legislator adds that the authorization for the sale of the assets of a private foundation with public utility status can only be refused if it calls into question the pursuit of the foundation's purposes in a way that is difficult to reverse or its economic viability.
Finally, it is added that if the authorization request does not have a final decision within the established period, tacit approval will occur.
- Control by the Court of Auditors: Private foundations benefiting from public support are now subject to control by the Court of Auditors regarding the use of such support.
- Extinction: Foundations may be extinct by the competent entity for recognition in the cases provided for by law, after hearing the Advisory Board, which may order investigations and audits, upon a well-founded decision.
- Administrative offense for misuse of the term "foundation": The misuse of the term foundation in the name of legal persons that have not been recognized as such, as well as misuse in order to deceive public authority, to obtain for yourself or another an illegitimate benefit or to harm the interests of others, constitutes an administrative offense punishable by a fine ranging between €50 to €1,000, in the case of natural persons, and from €500 to €10,000, in the case of legal persons.
The above provisions will not apply if the deadline for submitting a request for recognition is in progress.
Law No. 67/2021 will enter into force on January 1st, 2022.
To access the full version of Law No. 67/2021, please click here.